So far in 2018, shares of J.C. Penney (NYSE:JCP) and Kohl's (NYSE:KSS) have been headed in opposite directions. As of this writing, Penney is down 24% compared with a 31% gain for Kohl's. For two companies that are both moderate-price department stores, that is a bewildering difference in performance. The reason is that the future for one of these department store chains looks much more certain.

A side-by-side comparison

Metric

Kohl's

J.C. Penney

Revenue (TTM*)

$19.2 billion

$12.4 billion

Trailing P/E

13.6

N/A

Forward P/E

12.6

15.1

Enterprise value

$15.1 billion

$5.0 billion

Dividend yield

3.4%

N/A

TTM = trailing 12 months. Chart by author. Data source: Yahoo! Finance.

Kohl's for the rebound

Department stores have been roughed up in the last few years, and Kohl's has been no exception. Even while overall retail sales in the U.S. have increased modestly every year for nearly a decade, sales at the department store chain have struggled to gain traction. Over the last three-year stretch, revenue increased a meager 2%.

That has started to change as of late, though. Total revenue increased 2.2% in 2017, with comparable sales -- a combination of foot traffic and average transaction size -- increasing 6.3% during the important holiday season. That was followed by a 3.5% year-over-year revenue increase and 3.6% rise in comparable sales in the first quarter of 2018. Both events are responsible for the strong performance in Kohl's stock so far this year, as they've helped lift earnings by double digits.

While management attributes the strong performance to its work in improving digital sales capabilities and forging new partnerships with other retailers and product suppliers, Kohl's is also benefiting from the decline of some of its peers. Regional chain Bon-Ton is closing, and the decline of longtime mall anchor Sears is well documented. Thus, the story of Kohl's has been one of surviving the competition in today's digital age.

Three young women walking down a city street carrying shopping bags.

Image source: Getty Images.

J.C. Penney is treading water

One of Kohl's struggling peers is none other than J.C. Penney. Revenue hasn't budged in years, and high expenses have prevented the stores from turning a full-year profit since 2012. A rebound has been slowly mounting from the steep losses of a few years ago, but progress has been slower than at Kohl's. Revenue fell 0.3%, and comparable sales increased only 0.1% in 2017. The first quarter of 2018 was equally dismal, with revenue decreasing 4.3% and comparable sales increasing 0.2%.

It was a tough period for clothing retail, as management said that bad weather hurt results. It thinks J.C. Penney's results can improve through the rest of the year, though, and keep the bottom line on the road to recovery. That's indicated by a forward P/E of 15.1 based on analyst expectations.

However, the picture for J.C. Penney got a little cloudier late in the spring. CEO Marvin Ellison, who was tasked with the chain's recovery mission in 2015, left to take over at Lowe's in May. Ellison had been working to revitalize Penney with new sales categories like appliances, and by keeping costs in check. Those efforts have had limited impact on total sales thus far. However, with the company knocking on the door of profitability once again, a change at the top presents an unknown wild card to investors.

The winner is...

J.C. Penney shares have been beaten down so far this year, and the stock has plunged more than 85% over the past five years. Still, the company is surviving the deteriorating business conditions that all department stores are facing. If results improve later in the year, as management said it expects, the stock could be long overdue for a positive bounce.

However, Kohl's has managed its defense much better. Although shares have already rallied on promising results, the stock is more attractively priced at 12.6 times forward earnings, compared with 15.1 at J.C. Penney. With foot traffic back on the rise and the chain also sporting a 3.4% annual dividend, Kohl's looks like the better buy-and-hold stock at this point.

Nicholas Rossolillo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.